22 October, 2010
If there are any discrepancies or ambiguous terms in a tenancy agreement, it can lead to problems arising for both the landlord and the tenant. It is often the case in such situations that the parties do not fully understand their rights and obligations under the agreement and this may only come to light when one of the parties seeks to terminate the tenancy.
In Berrisford v Mexfield Housing Co-operative Limited  EWCA Civ 811, the Court of Appeal was asked to consider whether a term of a tenancy agreement preventing a landlord from ever terminating the tenancy (unless a specific action occurs) is valid, or whether the landlord can 'ignore' this term and still rely upon a valid Notice to Quit to bring the tenancy to an end.
Although the court's decision was an academic exercise, the judgments provided should be noted by social landlords for future reference.
Mexfield (M) was a fully mutual housing association. This meant that it was not able to provide either assured or secure tenancies. M's members/tenants, therefore, had no statutory protection against eviction apart from the Protection from Eviction Act 1977 (which states that a person may not be evicted without a court order).
One of its members/tenants (B) entered into an "occupancy agreement" with M in December 1993. It was agreed that M would let a property in Barnet to B for the payment of a weekly rent. The terms of the agreement stated that it could only be terminated by M if B fell into more than 3 weeks of rent arrears or breached one of the terms of the agreement.
In February 2008, M gave B a Notice to Quit which requested her to leave the property in March 2008, even though B was not in arrears at the time and had not breached the agreement. In April 2008, M issued possession proceedings and although B raised a number of defences, M then applied for summary judgment. In November 2008 a judge rejected M's application but M appealed against the decision.
At the appeal hearing in the High Court, the judge ruled in favour of M and held that it could rely upon the Notice to Quit. B appealed against this decision to the Court of Appeal. It should be noted that although M was successful in obtaining the possession order, it entered into a new "occupancy agreement" with B in relation to the property following the appeal hearing. This meant that the present proceedings were largely academic in nature but nevertheless remained important to M: it was said that M had been regularly using such agreements since 1992 and that the legal effect of these agreements had caused problems when M had brought possession proceedings.
The Court of Appeal had to consider whether M remained entitled to bring the tenancy to an end in such a manner, despite the fact that the terms of the "occupancy agreement" stated otherwise. M relied upon previous case law (Prudential Assurance Co Ltd v London Residuary Body (1992) 2 AC 386) and put forward an argument that its agreement with B was void due to the uncertainty and that instead, B had an implied tenancy of the property through the conduct of the parties. This could therefore be terminated by a valid Notice to Quit. B submitted that although at common law the tenancy was void, equity prevented M, as an original contracting party, from seeking possession of the property in a manner which was in breach of a clause of the purported contract.
The Court of Appeal rejected B's appeal (although it should be noted that Wilson LJ provided a dissenting judgment). It was held that any lease or tenancy agreement created is able to serve two purposes: firstly to record the contract made between the parties, and secondly to create an interest in land for the tenant which may be transferable, subject to any restrictions. Similarly, it was also held that for hundreds of years English law had required that both the beginning of a lease and its maximum duration must be certain, or capable of being certain before the lease took effect. In B's case, the maximum length of the "occupancy agreement" was uncertain which meant that it was ineffective in granting a lease to B of the property.
The question which consequently arose was whether a contract (which had been deemed to have failed to have granted a lease to a tenant due to uncertainty) could continue and be enforced through an equitable remedy. The court held that if the purpose of the original contract (i.e. to create an interest in land for a tenant) could not be achieved in law due to an uncertain term, then equity should not be permitted to 'rescue' it and enforce the contract. It was said to be both illogical and unsound, as a matter of principle, for a contract which aimed to grant an interest in land but failed due to uncertainty, to survive as a separate and distinct contract which could then be enforced.
It was also held that it was not possible to construe the agreement between M and B as an agreement to grant a contractual licence as it was obvious that neither party had intended this to be the outcome of their arrangement.
It is apparent from the judgment provided by the court that the decision reached was not one which was done so with enthusiasm. Indeed, Mummery LJ said that the last thing the parties intended was to make an agreement that was not binding, void at law and which would lead to arguments in three different courts. However, it was said that whilst it was clear what B and M intended to contract, it was equally evident that the rules relating to the certainty of terms could not be fulfilled by the "occupancy agreement". Aikens LJ also stated that: "It is time that this rule was re-examined by Parliament."
Given these words and also the potential for the case to be appealed to the Supreme Court, it is advised that social landlords are aware of these potentially troublesome rules and consider how they may be affected by them.